LOAN NUMBER 2834-IND

LOAN AGREEMENT (Ordinary Operations)

(North Eastern Region Capital Cities Development Investment Program –

Project 2)

between

INDIA

and

ASIAN DEVELOPMENT BANK

DATED 19 NOVEMBER 2012

IND 35290

LOAN AGREEMENT (Ordinary Operations)

LOAN AGREEMENT dated 19 November 2012 between INDIA acting by its President (“Borrower”) and ASIAN DEVELOPMENT BANK (“ADB”). WHEREAS

(A) by a framework financing agreement dated 14 May 2009 as amended to date, between the Borrower and ADB, ADB has agreed to provide a multitranche financing facility to the Borrower for purposes of financing projects under the North Eastern Region Capital Cities Development Investment Program (“NERCCDIP”);

(B) by a periodic financing request dated 1 August 2011 (received by ADB on 03 August 2011), the Borrower has applied to ADB for a loan for the purposes of the Project described in Schedule 1 to this Loan Agreement; (C) the Project will be carried out by (i) the Borrower's Ministry of Urban Development (“MOUD”); (ii) the State of Meghalaya (“Meghalaya”); (iii) the State of Mizoram (“Mizoram”); (iv) the State of Nagaland (“Nagaland”); (v) the State of Sikkim (“Sikkim”); and (vi) the State of Tripura (“Tripura”) and for this purpose the Borrower will make available to MOUD, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura the proceeds of the Loan provided for herein upon terms and conditions mutually satisfactory to the Borrower and ADB; and (D) ADB has agreed to make a loan to the Borrower from ADB's ordinary capital resources upon the terms and conditions set forth herein and in the Project Agreements of even date herewith between ADB and each Project Executing Agency; NOW THEREFORE the parties hereto agree as follows:

ARTICLE I

Loan Regulations; Definitions Section 1.01. All the provisions of the Ordinary Operations Loan Regulations Applicable to LIBOR-Based Loans Made from ADB's Ordinary Capital Resources, dated 1 July 2001 (“Loan Regulations”), are hereby made applicable to this Loan Agreement with the same force and effect as if they were fully set forth herein, subject, however, to the following modifications thereof:

(a) Section 3.03 is deleted and the following is substituted therefor:

Commitment Charge; Credit. (a) The Borrower shall pay a commitment charge on the unwithdrawn amount of the Loan at the rate and on the terms specified in the Loan Agreement.

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(b) ADB shall provide to the Borrower a credit at the rate specified in the Loan Agreement, which credit shall remain fixed for the term of the Loan. ADB shall apply the amount of the credit against the interest payable by the Borrower.

(b) Section 3.06 is deleted and the following is substituted therefor:

(a) Following any announcement by ADB that the

Fixed Spread applicable to new Loans shall be reduced, ADB shall provide a Rebate to any Borrower with an outstanding Loan on which a higher Fixed Spread is applicable. The amount of the Rebate shall be determined by multiplying (i) the difference between the Fixed Spread applicable to the outstanding Loan and the Fixed Spread that will be applied to new Loans (expressed as a percentage per annum), by (ii) the principal amount of the outstanding Loan on which the Borrower shall pay interest for all interest periods commencing on and after the effective date of the lower Fixed Spread that will be applied to new Loans.

(b) Following any announcement by ADB that its

Funding Cost Margin calculations with respect to any Loan Currency (or Approved Currency) in any Semester resulted in ADB achieving savings, ADB shall provide a Rebate to the Borrower. The amount of the Rebate shall be determined by multiplying (i) the Funding Cost Margin (expressed as a percentage per annum) by (ii) the principal amount of the Loan on which the Borrower shall pay interest for the Interest Period commencing immediately after the Semester for which the Funding Cost Margin was calculated. ADB shall apply the amount of the Rebate against the interest payable by the Borrower for the Interest Period commencing immediately after the Semester for which the Funding Cost Margin was calculated.

(c) Section 3.07 is deleted and the following is substituted therefor:

(a) Following any announcement by ADB that the Fixed Spread applicable to new Loans shall be increased, any Borrower with an outstanding Loan on which a lower Fixed Spread is applicable shall pay ADB a Surcharge. The amount of the Surcharge shall be determined by multiplying (i) the difference between the Fixed Spread that will be applied to new Loans and the Fixed Spread applicable to the outstanding Loan (expressed as a percentage per annum), by (ii) the principal amount of the outstanding Loan on which the Borrower shall pay interest for all interest periods commencing on and after the effective date of the higher Fixed Spread that will be applied to new Loans.

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(b) Following any announcement by ADB that its Funding Cost Margin calculations with respect to any Loan Currency (or Approved Currency) in any Semester resulted in ADB incurring additional costs, the Borrower shall pay ADB a Surcharge. The amount of the Surcharge shall be determined by multiplying (i) the Funding Cost Margin (expressed as a percentage per annum) by (ii) the principal amount of the Loan on which the Borrower shall pay interest for the Interest Period commencing immediately after the Semester for which the Funding Cost Margin was calculated. ADB shall add the amount of the Surcharge to the interest payable by the Borrower for the Interest Period commencing immediately after the Semester for which the Funding Cost Margin was calculated.

Section 1.02. Wherever used in this Loan Agreement, the several

terms defined in the Loan Regulations have the respective meanings therein set forth unless modified herein or the context otherwise requires. Additional terms used in this Loan Agreement have the following meanings:

(a) “Capital City” or “Capital Cities” refers to each or all of the following

cities: Agartala, in Tripura; Aizawl, in Mizoram; Gangtok, in Sikkim; Kohima, in Nagaland; and Shillong, in Meghalaya;

(b) “Consulting Guidelines” means ADB’s Guidelines on the Use of Consultants by Asian Development Bank and its Borrowers (2010, as amended from time to time);

(c) “EARF” means the environmental assessment and review framework for the Investment Program, including any update thereto, agreed between the Borrower and ADB and incorporated by reference in the FFA;

(d) “Environmental Safeguards” means the principles and requirements

set forth in Chapter V, Appendix 1, and Appendix 4 (as applicable) of the SPS;

(e) “Facility” means the multitranche financing facility provided by ADB to the Borrower for purposes of financing projects under the Investment Program;

(f) “FAM” means the Facility administration manual dated May 2010 and

agreed between the Borrower and ADB, as updated from time to time in accordance with the respective administrative procedures of the Borrower and ADB;

(g) “FFA” means the framework financing agreement dated 14 May 2009, as amended on 31 October 2011, between ADB and the Borrower with respect to the Facility;

(h) “Goods” means equipment and materials to be financed out of the proceeds of the Loan, including related services such as transportation, insurance, installation, commissioning, training, and initial maintenance, but excluding Consulting Services;

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(i) “Indigenous Peoples Planning Framework” or “IPPF” means the indigenous peoples planning framework for the Investment Program, including any update thereto, agreed between the Borrower and ADB and incorporated by reference in the FFA;

(j) “Indigenous Peoples Safeguards” means the principles and

requirements set forth in Chapter V, Appendix 3, and Appendix 4 (as applicable) of the SPS;

(k) “Initial Environmental Examination” means each initial environmental

examination for the Project, including any update thereto, prepared and submitted by the Borrower pursuant to the requirements set forth in the EARF and cleared by ADB;

(l) “Investment Program” or “Program” refers to the NERCCDIP as

defined below;

(m) “Involuntary Resettlement Safeguards” means the principles and requirements set forth in Chapter V, Appendix 2, and Appendix 4 (as applicable) of the SPS;

(n) “IPCC” means Investment Program Coordination Cell, established under the first project under NERCCDIP;

(o) “IPEC” means Investment Program Empowered Committee, established under the first project under NERCCDIP;

(p) “km” means kilo meter(s);

(q) “kV” means kilo volt(s);

(r) “Loan Disbursement Handbook” means ADB’s Loan Disbursement

Handbook (2007, as amended from time to time);

(s) “MOUD” refers to the Borrower's Ministry of Urban Development and includes any successor thereto;

(t) “NERCCDIP” means North Eastern Region Capital Cities Development Investment Program, of which the Project is the second project;

(u) “NRW” means non-revenue water;

(v) “NSC” means National Steering Committee, established under the first project under NERCCDIP;

(w) “PFR” means the periodic financing request submitted or to be submitted by the Borrower, for the purposes of each loan under the Facility, and for the purpose of this Loan Agreement means the periodic financing request dated 3 August 2011.

(x) “Procurement Guidelines” means ADB’s Procurement Guidelines (2010, as amended from time to time);

(y) “Procurement Plan” means the procurement plan for the Project as attached to the PFR, dated 3 August 2011, and agreed between the Borrower, MOUD, the

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States, and ADB, as updated from time to time in accordance with Procurement Guidelines, Consulting Guidelines, and other arrangements agreed with ADB;

(z) “Project area” refers to the Capital Cities defined under (a) above;

(aa) “Project Executing Agencies” for the purposes of, and within the meaning of the Loan Regulations, means (i) at the national level, MOUD or any successor thereto acceptable to ADB; and (ii) at the State Level, the SEAs, as defined hereunder, or any successor thereto acceptable to ADB;

(bb) “Project facilities” means the equipment or facilities to be provided under the Project;

(cc) “Resettlement Framework” or “RF” means the resettlement framework for the Investment Program, including any update thereto, agreed between the Borrower, the States and ADB and incorporated by reference in the FFA;

(dd) “RRP” refers to the Report and Recommendations of ADB's President to ADB's Board for the Facility;

(ee) “Safeguard Policy Statement” or “SPS” means ADB's Safeguard Policy

Statement (2009); (ff) “Safeguards Monitoring Report” means each report prepared and

submitted by the Borrower or the States to ADB that describes progress with implementation of, and compliance with, the environmental management plan, the resettlement plan and the indigenous peoples’ plan (as applicable), including any corrective and preventative actions;

(gg) “SEA” or “SEAs” means state-level Executing Agency or Agencies and

refers to any or all of the following: (i) for Meghalaya: its Urban Affairs Department; (ii) for Mizoram: its Urban Development and Poverty Alleviation Department; (iii) for Nagaland: its Urban Development Department; (iv) for Sikkim: its Urban Development and Housing Department; and (v) for Tripura: its Urban Development Department;

(hh) “SIPMIU” means State Investment Program Management and Implementation Unit, established under the first project under NERCCDIP;

(ii) “SSC” means State Steering Committee, established under the first project under NERCCDIP;

(jj) “State” or “States” means any or all of the States of Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura of the Borrower;

(kk) “ULB” or “ULBs” refers to any or all urban local body or bodies of a State, or all States, as the context may require;

(ll) “Urban Reform Program” refers to the Urban Institutional, Financial, Regulatory, and Operational Program agreed between the Borrower, the States, and ADB and which is included in Appendix 12 to the RRP, in as far as it is applicable to the Project; and

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(mm) “Works” means construction or civil works to be financed out of the proceeds of the Loan, including services such as drilling or mapping, and project related services that are provided as part of a single responsibility or turnkey contract, but excluding consulting services.

ARTICLE II

The Loan Section 2.01. (a) ADB agrees to lend to the Borrower from ADB's ordinary capital resources an amount of seventy two million Dollars ($72,000,000) as such amount may be converted from time to time through a Currency Conversion in accordance with the provisions of Section 2.06 of this Loan Agreement.

(b) The Loan has a principal repayment period of 20 years, and a grace period as defined in paragraph (c) of this Section.

(c) The term “grace period” as used in paragraph (b) hereinabove means the period prior to the first Principal Payment Date in accordance with the amortization schedule set forth in Schedule 2 to this Loan Agreement.

Section 2.02. The Borrower shall pay to ADB interest on the principal amount of the Loan withdrawn and outstanding from time to time at a rate for each Interest Period equal to the sum of LIBOR and 0.60% as provided by Section 3.02 of the Loan Regulations, less a credit of 0.20% as provided by Section 3.03 of the Loan Regulations.

Section 2.03. The Borrower shall pay a commitment charge of 0.15% per annum. Such charge shall accrue on the full amount of the Loan (less amounts withdrawn from time to time), commencing 60 days after the date of this Loan Agreement. Section 2.04. Interest and other charges on the Loan shall be payable semiannually on 1 June and 1 December in each year. Section 2.05. The Borrower shall repay the principal amount of the Loan withdrawn from the Loan Account in accordance with the provisions of Schedule 2 to this Loan Agreement. Section 2.06. (a) The Borrower may at any time request any of the following Conversions of the terms of the Loan in order to facilitate prudent debt management:

(i) a change of the Loan Currency of all or any portion of the principal amount of the Loan, whether withdrawn and outstanding or unwithdrawn, to an Approved Currency;

(ii) a change of the interest rate basis applicable to all or any

portion of the principal amount of the Loan withdrawn and

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outstanding from a Floating Rate to a Fixed Rate, or vice versa; and

(iii) the setting of limits on the Floating Rate applicable to all or any

portion of the principal amount of the Loan withdrawn and outstanding by the establishment of an Interest Rate Cap or Interest Rate Collar on said Floating Rate.

(b) Any conversion requested pursuant to paragraph (a) hereinabove that

is accepted by ADB shall be considered a “Conversion”, as defined in Section 2.01(6) of the Loan Regulations, and shall be effected in accordance with the provisions of Article V of the Loan Regulations and the Conversion Guidelines.

ARTICLE III

Use of Proceeds of the Loan Section 3.01. (a) The Borrower shall make the proceeds of the Loan available to MOUD and the States upon terms and conditions mutually agreeable between ADB and the Borrower and shall cause MOUD and the States to apply such proceeds to the financing of expenditures on the Project in accordance with the provisions of this Loan Agreement and the Project Agreements. (b) Of the Loan proceeds, the Borrower shall provide (i) to MOUD an amount equivalent to six hundred thousand Dollars ($600,000); (ii) to Meghalaya an amount equivalent to one million nine hundred seven thousand Dollars ($1,907,000); (iii) to Mizoram an amount equivalent to twenty one million two hundred eighty four thousand Dollars ($21,284,000); (iv) to Nagaland an amount equivalent to twelve million four hundred four thousand Dollars ($12,404,000); (v) to Sikkim an amount equivalent to eleven million nine hundred sixty two thousand Dollars ($11,962,000); and (vi) to Tripura an amount equivalent to twenty three million eight hundred forty three thousand Dollars ($23,843,000). MOUD and the States shall apply the proceeds of the Loan in accordance with the allocation of Loan proceeds under Schedule 3 to this Loan Agreement.

Section 3.02. The proceeds of the Loan shall be allocated and

withdrawn in accordance with the provisions of Schedule 3 to this Loan Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and ADB. Section 3.03. Except as ADB may otherwise agree, the Borrower shall procure, or cause to be procured, the items of expenditure to be financed out of the proceeds of the Loan in accordance with the provisions of Schedule 4 to this Loan Agreement. ADB may refuse to finance a contract where any such item has not been procured under procedures substantially in accordance with those agreed between the Borrower and ADB or where the terms and conditions of the contract are not satisfactory to ADB.

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Section 3.04. Except as ADB may otherwise agree, the Borrower shall cause all Goods, Works and consulting services financed out of the proceeds of the Loan to be used exclusively in the carrying out of the Project. Section 3.05. The Loan Closing Date for the purposes of Section 9.02 of the Loan Regulations shall be 30 June 2016 or such other date as may from time to time be agreed between the Borrower and ADB.

ARTICLE IV

Particular Covenants Section 4.01. (a) The Borrower shall cause MOUD and each State to carry out the Project with due diligence and efficiency and in conformity with sound applicable technical, financial, business and urban development practices. (b) In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement.

Section 4.02. The Borrower shall make available to MOUD and each State, promptly as needed, the funds, facilities, services, land and other resources as required, in addition to the proceeds of the proceeds of the Loan, for the carrying out of the Project. Section 4.03. The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures. Section 4.04. The Borrower shall enable ADB’s representatives to inspect the Project, the Goods and Works, and any relevant records and documents.

Section 4.05. The Borrower shall take all actions which shall be necessary on its part to enable MOUD and each State to perform its obligations under the Project Agreement, and shall not take or permit any action which would interfere with the performance of such obligations. Section 4.06. (a) In relation to the Project, the Borrower shall exercise its rights under the Financing Arrangements in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan.

(b) In relation to the Project, no rights or obligations under the Financing Arrangements shall be assigned, amended, abrogated or waived without prior notice to ADB.

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ARTICLE V

Effectiveness

Section 5.01. A date 90 days after the date of this Loan Agreement is specified for the effectiveness of the Loan Agreement for the purposes of Section 10.04 of the Loan Regulations.

ARTICLE VI

Miscellaneous Section 6.01. The Secretary, Additional Secretary, Joint Secretary, Director, or Deputy Secretary in the Department of Economic Affairs in the Ministry of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 12.02 of the Loan Regulations. Section 6.02. The following addresses are specified for the purposes of Section 12.01 of the Loan Regulations:

For the Borrower The Secretary Department of Economic Affairs Ministry of Finance

North Block New Delhi – 110001

India

Facsimile Numbers: +91 11 2309-2477 +91 11 2309-2511.

For ADB

Asian Development Bank 6 ADB Avenue Mandaluyong City 1550 Metro Manila Philippines

Facsimile Numbers:

+63 2 636-2444 +63 2 636-2293.

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SCHEDULE 1

Description of the Project

1. The objective of the Project is sustainable and increased access to better urban services in the Project area. 2. The Project comprises the following 2 parts: Part A: Urban Infrastructure and Services Improvements

1. Water Supply

a. Agartala

(i) Construction of about 14 overhead storage reservoirs; (ii) Construction of about 7 ground water treatment plants; (iii) Procurement and installation of about 59 km of primary

mains and about 225 km of secondary mains in the south zones; and

(iv) Installation of about 61 bulk water meters.

b. Aizawl (i) Installation of a 132 kV sub-station and transmission

system; (ii) Replacement of about 2 existing pump sets; (iii) Extension of about 24 km of main feeder pipelines; (iv) Rehabilitation of about 52 km of existing secondary and

tertiary network pipe lines; (v) Extension by about 32 km of distribution system; (vi) Road restoration for all the pipeline installations; (vii) Construction of about 3 ground level zonal tanks; and (viii) Procurement and installation of about 85 bulk and about

20,000 household water meters.

c. Gangtok (i) Construction of about 3.2 km of primary and about 115

km of secondary distribution networks; (ii) Construction of about 5 service reservoirs; and (iii) Installation of about 38 bulk and about 12,000

household water meters.

d. Kohima (i) Construction and replacement of about 315 km of

secondary distribution network; and

Schedule 1

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(ii) Procurement and installation of about 30 bulk and about 20,000 household water meters.

2. Sewerage and Sanitation

Construction of about 46 km of sewerage network with associated earthworks and utility shifting in Aizawl, connection of about 19,000 households with the new sewerage system, procurement of septic tank cleaning equipment, construction of about 10 blocks of community toilets, and construction of a sewer treatment plant.

3. Solid Waste Management

a. Shillong

(i) Construction of a vehicle garage cum workshop and fencing;

(ii) Procurement of about 60 thousand garbage bins of various capacities; and

(iii) Procurement of about 13 primary and about 5 secondary collection vehicles including 2 refuse compactors and workshop machineries.

b. Gangtok

(i) Construction of a sanitary landfill and procurement of related equipment;

(ii) Procurement of mini garbage tippers, push carts, bins, metallic containers, and compactor trucks; and

(iii) Procurement and distribution of about 51,000 household bins for the residents’ waste segregation.

Part B: Capacity Building and Project Management

Providing support to Gangtok, Aizawl and Kohima in achieving improved urban governance and financing, municipalization, municipal financial reform, improved service delivery and improved capacity to manage the Investment Program.

Part C: Consulting Services to undertake the above.

3. The Project is expected to be completed by 31 December 2015.

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SCHEDULE 2

Amortization Schedule

(North Eastern Region Capital Cities Development Investment Program – Project 2) 1. The following table sets forth the Principal Payment Dates of the Loan and the percentage of the total principal amount of the Loan payable on each Principal Payment Date (Installment Share). If the proceeds of the Loan shall have been fully withdrawn as of the first Principal Payment Date, the principal amount of the Loan repayable by the Borrower on each Principal Payment Date shall be determined by ADB by multiplying: (a) the total principal amount of the Loan withdrawn and outstanding as of the first Principal Payment Date; by (b) the Installment Share for each Principal Payment Date, such repayment amount to be adjusted, as necessary, to deduct any amounts referred to in paragraph 4 of this Schedule, to which a Currency Conversion applies.

Date Payment Installment Share Due (Expressed as a % based on 10% annuity)

1 June 2017 0.827816

1 December 2017 0.869207

1 June 2018 0.912667

1 December 2018 0.958301

1 June 2019 1.006216

1 December 2019 1.056526

1 June 2020 1.109353

1 December 2020 1.164820

1 June 2021 1.223061

1 December 2021 1.284214

1 June 2022 1.348425

1 December 2022 1.415846

1 June 2023 1.486639

1 December 2023 1.560971

1 June 2024 1.639019

1 December 2024 1.720970

1 June 2025 1.807019

1 December 2025 1.897369

1 June 2026 1.992238

1 December 2026 2.091850

1 June 2027 2.196442

1 December 2027 2.306264

1 June 2028 2.421578

1 December 2028 2.542657

1 June 2029 2.669789

1 December 2029 2.803279

1 June 2030 2.943443

Schedule 2

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Date Payment Installment Share

Due (Expressed as a % based on 10% annuity)

1 December 2030 3.090615

1 June 2031 3.245146

1 December 2031 3.407403

1 June 2032 3.577773

1 December 2032 3.756662

1 June 2033 3.944495

1 December 2033 4.141720

1 June 2034 4.348806

1 December 2034 4.566246

1 June 2035 4.794558

1 December 2035 5.034286

1 June 2036 5.286000

1 December 2036 5.550311

Total 100.000000

2. If the proceeds of the Loan shall not have been fully withdrawn as of the first Principal Payment Date, the principal amount of the Loan repayable by the Borrower on each Principal Payment Date shall be determined as follows:

(a) To the extent that any proceeds of the Loan shall have been withdrawn as of the first Principal Payment Date, the Borrower shall repay the amount withdrawn and outstanding as of such date in accordance with paragraph 1 of this Schedule.

(b) Any withdrawal made after the first Principal Payment Date shall be

repaid on each Principal Payment Date falling after the date of such withdrawal in amounts determined by ADB by multiplying the amount of each such withdrawal by a fraction, the numerator of which shall be the original Installment Share specified in the table in paragraph 1 of this Schedule for said Principal Payment Date (the Original Installment Share) and the denominator of which shall be the sum of all remaining Original Installment Shares for Principal Payment Dates falling on or after such date, such repayment amounts to be adjusted, as necessary, to deduct any amounts referred to in paragraph 4 of this Schedule, to which a Currency Conversion applies. 3. Withdrawals made within 2 calendar months prior to any Principal Payment Date shall, for the purposes solely of calculating the principal amounts payable on any Principal Payment Date, be treated as withdrawn and outstanding on the second Principal Payment Date following the date of withdrawal and shall be repayable on each Principal Payment Date commencing with the second Principal Payment Date following the date of withdrawal. 4. Notwithstanding the provisions of paragraphs 1 and 2 of this Schedule, upon a Currency Conversion of all or any portion of the withdrawn principal amount of the Loan to an Approved Currency, the amount so converted in said Approved Currency that shall be repayable on any Principal Payment Date occurring during the Conversion Period, shall be

Schedule 2

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determined by ADB by multiplying such amount in its currency of denomination immediately prior to said Conversion by either: (i) the exchange rate that reflects the amounts of principal in said Approved Currency payable by ADB under the Currency Hedge Transaction relating to said Conversion; or (ii) if ADB so determines in accordance with the Conversion Guidelines, the exchange rate component of the Screen Rate. 5. If the principal amount of the Loan withdrawn and outstanding from time to time shall be denominated in more than one Loan Currency, the provisions of this Schedule shall apply separately to the amount denominated in each Loan Currency, so as to produce a separate amortization schedule for each such amount.

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SCHEDULE 3

Allocation and Withdrawal of Loan Proceeds General 1. The table attached to this Schedule sets forth the Categories of Goods, Works, consulting services and other items to be financed out of the proceeds of the Loan and the allocation of amounts of the Loan to each such Category (“Table”). (Reference to “Category” in this Schedule is to a Category or Subcategory of the Table.) Percentages of ADB Financing 2. Except as ADB may otherwise agree, the items of the Categories listed in the Table shall be financed out of the proceeds of the Loan on the basis of the percentages set forth in the Table. Reallocation 3. Notwithstanding the allocation of Loan proceeds and the withdrawal percentages set forth in the Table:

(a) if the amount of the Loan allocated to any Category appears to be insufficient to finance all agreed expenditures in that Category, ADB may, in consultation with and by notice to the Borrower and the States, (i) reallocate to such Category, to the extent required to meet the estimated shortfall, amounts of the Loan which have been allocated to another Category but, in the opinion of ADB, are not needed to meet other expenditures, and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the withdrawal percentage applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made; and

(b) if the amount of the Loan then allocated to any Category appears to

exceed all agreed expenditures in that Category, ADB may, in consultation with and by notice to the Borrower and the States, reallocate such excess amount to any other Category. Disbursement Procedures 4. Except as ADB may otherwise agree, the Loan proceeds shall be disbursed in accordance with the Loan Disbursement Handbook. Imprest Account and Statement of Expenditures 5. (a) Except as ADB may otherwise agree, the Borrower may establish immediately after the Effective Date, (i) a first generation imprest account (FGIA) at the Reserve Bank of India, and (ii) a second generation imprest accounts (SGIA) for each State at a commercial bank acceptable to ADB. The imprest accounts shall be established, managed, replenished and liquidated in accordance with the Loan Disbursement Handbook, and detailed arrangements agreed upon between the Borrower and ADB. The imprest account shall only be used for the purposes of the Project. The currency of FGIA shall be the

Schedule 3

17

Dollar and for the SGIA shall be the Indian Rupee. The initial amount to be deposited into the imprest accounts shall not exceed the lower of (i) the estimated expenditure for the first 6 months of Project implementation, or (ii) the equivalent of 10% of the Loan amount. The Borrower shall ensure that all funds received from ADB for the Project in the FGIA shall be passed on to the SGIAs.

(b) The statement of expenditures procedure may be used for

reimbursement of eligible expenditures and to liquidate advances provided into the imprest account, in accordance with ADB's Loan Disbursement Handbook and detailed arrangements agreed upon between the Borrower, the States, and ADB. Any individual payment to be reimbursed or liquidated under the statement of expenditure procedure shall not exceed $100,000.

(c) The force account works procedure may be used for reimbursement of

eligible expenditures under procurement by the force account in accordance with the Loan Disbursement Handbook.

Retroactive Financing 6. Withdrawals from the Loan Account may be made for reimbursement of reasonable expenditures incurred under the Project before the Effective Date, but not earlier than 12 months before the date of this Loan Agreement in connection with (i) civil works, (ii) equipment and materials, and (iii) consultancy services, subject to a maximum amount

equivalent to 20% of the total loan amount.

Attachment to Schedule 3

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TABLE

ALLOCATION AND WITHDRAWAL OF LOAN PROCEEDS (North Eastern Capital Cities Development Investment Program – Project 2 )

CATEGORY ADB FINANCING BASIS

Total Amount Allocated for

ADB Financing Percentage of ADB Financing

from the Loan Account Number Item $

Category

1 Civil Works

1a State of Tripura 6,880,000 62% of total expenditure claimed

1b State of Mizoram 9,940,000 62% of total expenditure claimed

1c State of Sikkim 6,150,000 62% of total expenditure claimed

1d State of Nagaland 6,724,000 62% of total expenditure claimed

1e State of Meghalaya 173,000 62% of total expenditure claimed

2 Equipment and Materials

2a State of Tripura 13,605,000 100% of total expenditure claimed*

2b State of Mizoram 5,774,000 100% of total expenditure claimed*

2c State of Sikkim 2,145,000 100% of total expenditure claimed*

2d State of Nagaland 1,822,000 100% of total expenditure claimed*

2e State of Meghalaya 665,000 100% of total expenditure claimed*

3 Consulting Services

3a State of Mizoram 1,200,000 100% of total expenditure claimed*

3b State of Sikkim 1,200,000 100% of total expenditure claimed*

3c State of Nagaland 1,200,000 100% of total expenditure claimed*

3d Ministry of Urban

Development

600,000 100% of total expenditure claimed*

4 Project Administration and Implementation

4a State of Tripura 150,000 100% of total expenditure claimed*

4b State of Mizoram 1,400,000 100% of total expenditure claimed*

4c State of Sikkim 800,000 100% of total expenditure claimed*

4d State of Nagaland 900,000 100% of total expenditure claimed*

4e State of Meghalaya 950,000 100% of total expenditure claimed*

5 Unallocated

5a State of Tripura 3,208,000

5b State of Mizoram 2,970,000

5c State of Sikkim 1,667,000

5d State of Nagaland 1,758,000

5e State of Meghalaya 119,000

Total 72,000,000 *Exclusive of taxes and duties

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SCHEDULE 4

Procurement of Goods and Works, and Consulting Services

General 1. The procurement of Goods, Works and Consulting Services shall be subject to and governed by the Procurement Guidelines, and the Consulting Guidelines, respectively. 2. All terms used and not otherwise defined in this Loan Agreement have the meanings provided in the Procurement Guidelines and/or the Consulting Guidelines, as applicable. Goods and Works 3. Except as ADB may otherwise agree, Goods and Works shall only be procured on the basis of the methods of procurement set forth below: (a) International Competitive Bidding; (b) National Competitive Bidding; (c) Shopping; and (d) Force Account. The methods of procurement are subject to, among other things, the detailed arrangements and threshold values set forth in the Procurement Plan. The Borrower may only modify the methods of procurement or threshold values with the prior agreement of ADB, and modifications must be set out in updates to the Procurement Plan.

4. National Competitive Bidding. The Borrower and ADB shall ensure that prior to the commencement of any procurement activity under national competitive bidding, the Borrower’s and the States’ national competitive bidding procedures are consistent with the Procurement Guidelines. Any modifications or clarifications to such procedures agreed between the Borrower and ADB shall be set out in the Procurement Plan. Any subsequent change to the agreed modifications and clarifications shall become effective only after written approval of such change by the Borrower and ADB. Conditions for Award of Contract 5. The Borrower and the States shall not award any Works contract which involves environmental impacts until the relevant Project Executing Agency has obtained final approval of relevant IEE from the relevant environmental authority, and relevant environmental provisions have been incorporated into the Works contract. 6. The Borrower and the States shall not award any Works contract involving involuntary resettlement impacts for (i) Agartala water supply subproject, (ii) Aizawl water supply subproject and sewerage and sanitation subproject, (iii) Gangtok solid waste management subproject and water supply subproject until the Borrower or the relevant State has prepared and submitted to ADB the final resettlement plan for these subprojects based on their detailed design, and obtained ADB's clearance of such resettlement plan.

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7. The Borrower and the States shall not award any Works contract which involves impacts on indigenous peoples until the Borrower or the relevant State has prepared and submitted to ADB the final indigenous peoples’ plan and obtained ADB's clearance of such plan.

Condition to Commence Civil Works

8. The Borrower and the States shall not allow the Works contract to commence for the construction of sanitary landfill site in Gangtok until the initial environmental examination is revised to include (i) baseline data of waste composition at the existing landfill site, (ii) a specific occupational health and safety plan prepared for excavation of waste, and (iii) clear methodology to protect surface water from leachate runoff during the contract period.

Consulting Services 9. Except as ADB may otherwise agree, and except as set forth in the paragraph below, the Borrower shall cause MOUD and the States to apply quality- and cost-based selection for selecting and engaging Consulting Services. 10. The Borrower shall cause the States to apply the following method for selecting and engaging the specified consulting services, in accordance with, among other things, the procedures set forth in the Procurement Plan:

Least-Cost Selection for surveys, assessments and awareness raising campaigns costing less than one hundred thousand Dollars ($100,000).

Industrial or Intellectual Property Rights 11. (a) The Borrower, through MOUD and the States, shall ensure that all Goods and Works procured (including without limitation all computer hardware, software and systems, whether separately procured or incorporated within other goods and services procured) do not violate or infringe any industrial property or intellectual property right or claim of any third party. (b) The Borrower, through MOUD and the States, shall ensure that all contracts for the procurement of Goods and Works contain appropriate representations, warranties and, if appropriate, indemnities from the contractor or supplier with respect to the matters referred to in subparagraph (a) of this paragraph. 12. The Borrower, through MOUD and the States, shall ensure that all ADB-financed contracts with consultants contain appropriate representations, warranties and, if appropriate, indemnities from the consultants to ensure that the consulting services provided do not violate or infringe any industrial property or intellectual property right or claim of any third party.

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ADB’s Review of Procurement Decisions 13. Contracts procured under international competitive bidding procedures and contracts for consulting services shall be subject to prior review by ADB, unless otherwise agreed between the Borrower, the States, and ADB and set forth in the Procurement Plan.

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SCHEDULE 5

Execution of Project; Financial Matters

A. Arrangements and responsibilities for Project management and implementation

1. The Borrower shall cause MOUD and the States to ensure that the Project is implemented in accordance with the detailed arrangements set forth in the FAM. Any subsequent change to these documents shall become effective only after approval of such change by the Borrower, MOUD, the States, and ADB as required. In the event of any discrepancy between the FAM and this Loan Agreement, the provisions of this Loan Agreement shall prevail.

1. Central level

National-level Project Executing Agency 2. MOUD shall be the national-level Project Executing Agency.

National Steering Committee 3. The NSC and IPCC, established under the first project under NERCCDIP shall continue to perform their functions under the first project for the implementation of the Project. NSC shall be responsible to monitor the use of funds under the Project as well as overall Project performance. The NSC shall be chaired by the Secretary MOUD and comprise representatives of the Department of Economic Affairs, Ministry of Finance, the Ministry for Development of the North Eastern Region, the Planning Commission, and representatives of each State. The NSC shall meet whenever necessary, but not less than once every quarter.

Investment Program Coordination Cell 4. The IPCC established within MOUD under the first project shall continue at all times during Project implementation, be headed by an Investment Program Manager who shall be supported by at least one administrative and financial official, one technical official, and one official responsible for environmental and social issues. The IPCC shall be supported by a team of program management and monitoring consultants, to be headed by an experienced urban development or municipal engineering expert, and including an urban management and finance specialist as well as a management information systems specialist. 5. The IPCC shall be responsible for (i) reporting to ADB on Investment Program and Project implementation progress; (ii) preparing and submitting to ADB consolidated quarterly reports; (iii) consolidating payment and reimbursement requests; (iv) coordinating policy-related activities and ensuring that actions highlighted during NSC meetings are acted upon; (v) preparing the overall Investment Program implementation plan and consolidated annual work plans; (vi) coordinating training programs and allocations for each of the States; (vii) conducting monitoring and evaluation activities to ensure compliance with Loan covenants and agreed targets; and (viii) designing and implementing Investment Program performance management system surveys.

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2. State level State-level Project Executing Agencies

6. Each State shall continue to have a SEA as follows: (i) for Meghalaya: its Urban Affairs Department; (ii) for Mizoram: its Urban Development and Poverty Alleviation Department; (iii) for Nagaland: its Urban Development Department; (iv) for Sikkim: its Urban Development and Housing Department; and (v) for Tripura: its Urban Development Department. State Steering Committee and Investment Program Empowered Committee 7. The SSC and an IPEC established at each State under the first project shall continue to perform their functions under the first project for the implementation of the Project. Each SSC shall continue to be chaired by the Chief Secretary of the concerned State, and comprise relevant Secretaries and Heads of Department of such State. The SSC shall meet quarterly to (i) review progress on Project implementation; (ii) provide policy guidance; (iii) advise on matters that affect the scope or cost of the Project, as well as on matters related to the Urban Reform Program; and (iv) facilitate inter-agency coordination. 8. Each IPEC shall continue to be chaired by the Secretary of the concerned SEA and comprise representatives from ULBs and relevant departments of the concerned State. Each IPEC shall decide on matters related to the implementation of the Project that do not affect its scope or cost. The IPEC shall meet whenever needed, at the request of any IPEC member. The Program Director shall be the IPEC's member-secretary. State Investment Program Management and Implementation Unit 9. The SIPMIU established in each State shall at all times during Project implementation be headed by a full-time Project Director who shall be a senior civil servant authorized to make any decision affecting the Project at State level. S/he shall be assisted by a full-time Deputy Project Director, a senior administration officer, a senior accounts officer, technical and engineering staff, a public relations officer, and a management information systems specialist. Each of the senior staff shall be supported by sufficient qualified junior staff. Each SIPMIU shall establish small engineering cells, as needed, with staff deputed from relevant departments and ULBs. Each engineering cell, headed by a superintending or executive engineer, shall be responsible for designing, contracting, supervising, and administering the work of that cell. 10. Each SIPMIU shall be responsible for overall management and implementation of the Project in its respective State, including (i) recruiting consultants and NGOs; (ii) carrying out detailed surveys, investigations, and engineering designs of investment activities prior to starting any tendering process; (iii) coordinating with agencies and obtaining all required statutory clearances; (iv) conducting all aspects of the procurement process in compliance with ADB's Procurement Guidelines; (v) ensuring compliance with Loan covenants; (vi) administering the contracts of consultants and contractors, certifying payments and preparing change orders; (vii) submitting disbursement requests to MOUD for forwarding to the Borrower for onward transmission to ADB; (viii) timely submitting reports, including audit reports, to the IPCC and ADB; (ix) supervising the implementation of the gender action plan for the Project as well as other social activities; (x) guiding awareness campaigns and participation programs; (xi) organizing and operating state-level Project performance monitoring systems, including

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collecting data for key indicators and conducting baseline and completion surveys; (xii) reviewing and facilitating the progress of the Urban Reform Program; and (xiii) designing and organizing capacity building programs. B. Project implementation matters

1. Financial and institutional issues

11. The Borrower and the States shall ensure sufficient funds shall be allocated to meet all operation and maintenance costs for all assets created under the Investment Program. 12. MOUD shall ensure that any claims received from any of the States in relation to the Project, shall be reimbursed within 30 calendar days after receiving such claim. 13. The Project website, established under the first project, shall continue to provide information on procurement issues. The website shall include at a minimum the following information: (i) bidding procedures, bidders, and contract awards for the Project; (ii) use of the funds disbursed under the Project; and (iii) decisions of the SSC. 14. The Borrower and the States shall undertake, through their internal audit wing, annual financial audits, including the investigation of all financial records and transactions. 15. The Borrower and the States shall ensure that all contracts financed by ADB for the Project shall include provisions stipulating ADB's right to examine the records and accounts of the contractor.

2. Policy Reforms

16. Each SEA shall, while ensuring that the requirements under the SPS are fully complied with, implement all actions specified in the Urban Institutional, Financial, Regulatory, and Operational Reform Program agreed between the Borrower, the States, and ADB and which is included in Annex 1 Schedule 6 of the FFA as amended, in as far as it is applicable to the Project under the Facility.

3. Project scope

17. The Borrower and the States shall ensure that in the event there are any changes to the Project scope as described in Schedule 1 to this Loan Agreement, those changes shall be made in conformity with the selection criteria as set out in Schedule 4 to the FFA.

4. Environment

18. The Borrower and the States shall ensure that the preparation, design, construction, implementation and operation of the Project and all Project facilities comply with (a) all applicable laws and regulations of the Borrower relating to environment, health, and safety; (b) the Environmental Safeguards; (c) the EARF; and (d) all measures and requirements set forth in the respective IEE, and any corrective or preventative actions set forth in a Safeguards Monitoring Report.

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5. Land Acquisition and Involuntary Resettlement 19 The Borrower and the State shall ensure that all land and all rights-of-way required for the Project, and all Project facilities are made available to the Works contractor in accordance with the schedule agreed under the related Works contract and all land acquisition and resettlement activities are implemented in compliance with (a) all applicable laws and regulations of the Borrower relating to land acquisition and involuntary resettlement; (b) the Involuntary Resettlement Safeguards; (c) the RF; and (d) all measures and requirements set forth in the respective resettlement plan, and any corrective or preventative actions set forth in a Safeguards Monitoring Report. 20. Without limiting the application of the Involuntary Resettlement Safeguards, the RF or any resettlement plan, the Borrower and the States shall ensure that no physical or economic displacement takes place in connection with the Project until:

(a) compensation and other entitlements have been provided to affected people in accordance with the resettlement plan; and

(b) a comprehensive income and livelihood restoration program has been

established in accordance with the resettlement plan.

6. Indigenous Peoples 21. The Borrower and the States shall ensure that the preparation, design, construction, implementation and operation of the Project and all Project facilities comply with (a) all applicable laws and regulations of the Borrower relating to indigenous peoples; (b) the Indigenous Peoples Safeguards; (c) the IPPF; and (d) all measures and requirements set forth in the respective indigenous people’s plan, and any corrective or preventative actions set forth in a Safeguards Monitoring Report.

7. Human and Financial Resources to Implement Safeguards Requirements 22. The Borrower and the States shall make available necessary budgetary and human resources to fully implement the environmental management plan, the resettlement plan and the indigenous peoples’ plan.

8. Safeguards – Related Provisions in Bidding Documents and Works Contracts

23. The Borrower and the States shall ensure that all bidding documents and contracts for Works contain provisions that require contractors to:

(a) comply with the measures and requirements relevant to the contractor set forth in the IEE, the environmental management plan, the resettlement plan and the indigenous peoples’ plan (to the extent they concern impacts on affected people during construction), and any corrective or preventative actions set out in a Safeguards Monitoring Report;

(b) make available a budget for all such environmental and social measures;

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(c) provide the Borrower and the relevant State with a written notice of any unanticipated environmental, resettlement or indigenous peoples risks or impacts that arise during construction, implementation or operation of the Project that were not considered in the IEE, the environmental management plan, the resettlement plan or the indigenous peoples’ plan;

(d) adequately record the condition of roads, agricultural land and other

infrastructure prior to starting to transport materials and construction; and

(e) fully reinstate pathways, other local infrastructure, and agricultural land to at least their pre-project condition upon the completion of construction.

9. Safeguards Monitoring and Reporting

24. The Borrower and the States shall do the following:

(a) submit semiannual Safeguards Monitoring Reports to ADB and disclose relevant information from such reports to affected persons promptly upon submission;

(b) if any unanticipated environmental and/or social risks and impacts arise

during construction, implementation or operation of the Project that were not considered in the IEE, the environmental management plan, the resettlement plan or the indigenous peoples’ plan, promptly inform ADB of the occurrence of such risks or impacts, with detailed description of the event and proposed corrective action plan; and

(c) report any actual or potential breach of compliance with the measures

and requirements set forth in the environmental management plan, the resettlement plan or the indigenous peoples’ plan promptly after becoming aware of the breach.

10. Prohibited List of Investments

25. The Borrower and the States shall ensure that no proceeds of the Loan are used to finance any activity included in the list of prohibited investment activities provided in Appendix 5 of the SPS.

11. Other Social Issues

26. The Borrower and each State shall ensure to fully implement the gender action plan for the Investment Program as it applies to the Project. 27. The Borrower and the States shall ensure that all civil works contractors comply with all applicable labor laws, including those on occupational health and safety, equal pay for work of equal value between men and women, and do not employ child labor, as defined in national legislation, for construction and maintenance activities. 28. Each State shall retain the grievance reporting and redressal mechanism established under the first project.

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12. Construction Supervision, Recording, and Reporting

29. Within 3 months of the Effective Date, each SEA shall have approved a time-bound plan, with budget allocation, to strengthen construction supervision, recording, and reporting systems through the use of modern technology. Each SEA shall establish a quality control cell and operationalize an internal third party technical audit mechanism. All Works contracts shall include provisions for third party inspection for quality control.

13. Project Performance Monitoring and Evaluation

30. Investment Program performance monitoring system (IPPMS) established by IPCC shall be used to monitor and evaluate each project under the Facility, including the Project. The IPPMS shall continue include: (i) procedures and data collection and reporting; (ii) performance indicators for physical infrastructure, capacity development, and program management support; and (iii) target dates for reaching the performance indicators. Within 6 months of the Effective Date each State, through its SIPMIU, shall have established baseline indicators for each target.

14. Project Review

31. The Borrower, the States, and ADB shall jointly review the Project at least twice a year and conduct a detailed mid-term review towards the end of the third year of Project implementation.